We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Persimmon - continued momentum

George Salmon | 9 January 2018 | A A A
Persimmon - continued momentum

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Persimmon plc Ordinary 10p

Sell: 2,779.00 | Buy: 2,781.00 | Change 42.00 (1.53%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

Persimmon has confirmed 2017 revenue of £3.42bn, up 9% on last year. This reflects a 6% increase in legal completions, to 16,043, and a 3% increase in the group's average selling price, to £213,300.

The group is confident of delivering pre-tax profits modestly ahead of consensus, which currently stands at £957m according to Thomson Reuters. The shares rose 1.3% on the news.

View the latest share price and how to deal

Our View

Brexit negotiations add some uncertainty to the UK's housing market, but even in the face of gloomy data, the housebuilders have continued to report strong sales and high levels of interest.

There are a few factors supporting the market. Brits still want to own their own homes, the UK faces a major housing shortage and interest rates are at historic lows, helping to keep mortgages affordable even as prices creep up.

Persimmon has also cited the benefits of the government's 'Help to Buy' incentives for first time buyers. Many of the schemes are designed to encourage the purchase of new-builds, which account for an increasing proportion of overall transactions. That is providing the industry with a cushion the rest of the housing market lacks.

However, it would be foolish to think that the sector isn't vulnerable. Conditions that cause housing crashes can turn up at short notice, and in the past have had pretty nasty consequences for shareholders.

We recently saw a first interest rate rise in ten years. At present, we don't see much cause for rates to move more than Mark Carney's prediction of another couple of small ticks upward by November 2020. However, there's always the chance of a more rapid rise, which would put the squeeze on existing mortgage holders and could cool demand, causing prices to slide.

Fortunately, Persimmon has a stronger balance sheet than at the time of the last crisis, with a healthy net cash position. Its large land bank enables it to adopt a cautious approach to acquiring new plots if need be, keeping cash generation strong. It's also worth adding that the group has limited exposure to the London and South East markets, which some predict could be at most risk. We think these factors help explain why the group trades on a higher price to book ratio than its peers in the sector.

The plans to return 110p per share per year to shareholders out to 2021, but analysts are factoring in a more generous payout. Therefore we wouldn't be surprised to see the group bump up the payout in February's full-year results. The prospective yield is currently 4.8%.

Register for updates on Persimmon

Sign up to receive our free weekly share insight email

Trading update

Customer demand for new homes was described as healthy through the autumn sales season, and the £1.4bn of forward sales is 10% ahead of the prior year. Going into the spring season, the group has 375 active sales outlets.

Persimmon says it remains mindful of the uncertainty around the UK's departure from the EU, but is ready to invest wherever the local planning environment is supportive. Last year, 17,300 plots of new land were purchased in over 80 locations throughout the UK.

On 2 January a development project near Ipswich was launched to supplement existing operations in the east of England, while the new brick manufacturing plant in Harworth, near Doncaster, is now complete.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.